Please explain prices: Parliament subpoenas Apple, Microsoft, Adobe

news Federal Parliament has issued documents formally compelling major technology vendors Apple, Microsoft and Adobe to compulsorily appear before its committee investigating price hikes on technology products sold in Australia, in a move that finally ends months of stalling by the vendors, who have proven unwilling to voluntary discuss their pricing strategies in public.

In May last year, following a public campaign on the issue by Labor backbencher Ed Husic, the House of Representatives Standing Committee on Infrastructure and Communications called for submissions to help inform an inquiry into pricing of technology goods and services in Australia. The results demonstrated a strong groundswell of public anger about ongoing markups on technology goods sold in Australia.

Many of the submissions from users focused on the fact that online stores such as Apple’s iTunes, Valve’s Steam, Microsoft’s Xbox Live, Sony’s PlayStation Network, Amazon’s Kindle store and Adobe’s software store charged Australians higher prices for the exact same software and content than residents of other countries, particularly countries such as the US. Companies such as Microsoft have previously justified the charges based on the increased cost of doing business in Australia.

However, not all companies whose products have been mentioned by the inquiry have volunteered to attend to give evidence. US software giant Adobe, for example, declined to appear to give evidence to the inquiry, although it participated in a submission by the Australian Information Industry Association. Adobe has a practice of commonly marking up software products for the Australian market such as its popular image editing application Photoshop — despite the fact that the software is often downloaded from the same site in Australia and the US. Apple gave a private hearing to the committee, but not a public one, and Microsoft is believed to have taken a similar industry representation approach to Adobe.

In a short statement issued this morning, the House Committee on Infrastructure and Communications note that it had summonsed the following organisations to appear before the Committee as part of its inquiry into IT Pricing: Apple, Microsoft and Adobe. “Summonses have been issued for a public hearing in Canberra on 22 March 2013,” the committee noted.

Husic also issued his own statement on the issue this morning, welcoming the move. “This is an important move – but one we shouldn’t have to take,” Husic said. “These firms should have cooperated and been prepared to be more open and transparent about their pricing approaches. In what’s probably the first time anywhere in the world, these IT firms are now being called by the Australian Parliament to explain why they price their products so much higher in Australia compared to the US.”

“Adobe, Apple and Microsoft are just a few firms that have continually defied the public’s call for answers and refused to appear before the IT Pricing Inquiry. While television and computer prices fell 14 per cent according the to the latest Consumer Price Index Figures, there’s still a long way to go – with some estimates suggesting that Australian prices are up to 60 per cent higher than the US.

“Given the widespread use of IT across businesses and the community, the prices paid for hardware and software can have a major commercial and economic impact. Getting downward movement on IT prices and easing the bite of price discrimination should be an important micro-economic priority – so I’m looking forward to hearing from these firms about their pricing approaches.”

The three companies have all had a practice of marking up goods and services for the Australian market over the past few years.

However, consumer groups such as Choice have published comparison studies showing that music sold through Apple’s iTunes store, for example, still costs substantially more for the exact same digital products in Australian than it does in the US. The committee’s move to compel the vendors to attend will be welcomed by consumer organisation Choice. In November last year, the group called for the committee to force the vendors to give evidence.

“Choice has provided evidence showing Australians pay around 50 per cent more than US consumers for identical music, software, games and hardware,” said Matt Levey, Choice head of campaigns. “With the industry unwilling to volunteer any detailed or public response, it’s time for the Committee to use the full powers of the Parliament and compel these businesses to front up and explain why they think it’s alright for Australians to pay higher prices.”

Choice said it welcomed the Committee’s attempts to shine a light on IT price discrimination, but the must go beyond rehearsing a list of rip-offs and create real pressure for lower prices. “Just last week, AC/DC finally hit iTunes with a 54% difference, that’s $80 difference, between the local and US prices for the ‘complete collection’,” said Levey. “Unfortunately for those about to rock, this is far from an isolated example, and it is one reason why some music fans have taken to setting up US iTunes accounts to access legitimate, cheaper music.”

He added: “We are calling on the Government to investigate whether measures used to sustain international price discrimination, like geo-blocking, are anti-competitive, and an important step towards that is for this inquiry to call the industry’s bluff on their pricing excuses.”

opinion/analysis
I highly welcome and support the Committee’s move to compel these vendors to give evidence regarding their pricing strategies in Australia, and will be covering proceedings closely. As I wrote in late October:

“I’ve enjoyed a long-running relationship with the local offices of major technology vendors such as Microsoft, Adobe and Apple for the better part of a decade now. Good people work at these companies, and I admire much of the work they do. Certainly I continue to use and write about their products almost every day. I simply could not do the work I do without Microsoft Office and Windows 7, Apple’s Mac and iPad products, and Adobe’s Creative Suite.

So it is with respect, and conscious of that long relationship, that I say, enough is enough. These companies are treating the Australian consumer and the Australian Parliament with contempt right now on this issue, and need to pull their head in. Strength and pride can be virtues at times, but so can humility, and right now a little humility is needed from these companies, before both sides of Federal politics decide that they are tired of being treated like they don’t have any authority and start making the vendors’ lives very, very difficult indeed.”

Apple, Adobe and Microsoft are good companies, with a lot of good people working for them. I am looking forward to seeing a bit more honesty and transparency from them with regard to why their products (especially digital products) can at times be so heavily marked up for the Australian market. If nothing else, at least seeing some more honest evidence in this case will help fuel a wider debate about how the Australian Government can create a more favourable environment for major technology companies to operate in Australia.

57 Comments

Have to wonder if we’re talking about big businesses or spoiled brats, they’ve effectively been putting their fingers in their ears and saying lalalalala anytime somebody brought up regional pricing, and now they’re having to be dragged kicking and screaming to the hearings.

Should expanded beyond the obvious tech area it is across all areas of retail in Australia.
Geriatric Harvey should be getting is arms up about this and not GST and Video Games. Having previously worked in retail management(both SME and large chain) there is an issue when the wholesale cost of goods in Australia exceed the Shelf price in the US.

It’s a good start however, to the big 3, having bought Adobe/Microsoft stuff recently, I do find them more over priced than our counterparts – regardless of the excuses that these companies come up with.

I’ve always cackled at Gerry Harvey’s comments about the Australian Retail Market being decimated by competition from online internet sales. Unfortunate for him when you consider that at the time Harvey Norman was selling two-generation-old Roomba 500 series vacuums for more than you’d pay for importing the current model Roomba 700 series from Europe – even with extra IR beacons. Though this particular instance was probably due to iRobot’s Australian distributor, Salton, being idiotic and reselling clearance stock from overseas thus doing a dis-service to both Australian customers and iRobot’s reputation in Australia. Here’s hoping that now that Roomba has taken the brand off of Spectrum (Salton’s parent company) Roombas will be more up to date and affordable in Australia under their new distributor.

Unfortunately it is not uncommon to see large department stores in Australia doing the same thing, asking top dollar for old models that can’t even be bought overseas any more.

And why are we stuck with 4.5-inch GPS units in Australia when our overseas brethren have been able to easily buy 7-inch and larger units for several years?

It’s not just over-inflated prices the commission should be looking at… why is Australia the world’s clearing house for old and discarded product lines?

CHOICE WELCOMES SUMMONS OF TECH GIANTS
Apple, Adobe and Microsoft can no longer hide from the Australian public

CHOICE welcomes the move by the Federal Parliamentary Committee investigating digital prices to make international tech giants front up and explain the high prices paid by Australians.

The inquiry into digital prices has been running since last July however CHOICE says it has been hampered by stonewalling from Apple, Adobe and Microsoft. The companies have so far refused to publically front the inquiry and explain why they charge higher prices to Australians for their products.

CHOICE has provided evidence showing Australians pay around 50 per cent more than US consumers for identical music, software, games and hardware1.

“We welcome the move by the Committee to force these companies to front the Australian public and explain why they think it is okay to charge Australians more,” says CHOICE CEO Alan Kirkland.

The consumer group hopes that now the inquiry can create real pressure for lower prices in Australia. CHOICE is calling on the companies to come to the hearings prepared with answers and not just excuses.

“Australians are waking up to the fact that we are being ripped off. We believe it’s time that these companies realise this and start pricing fairly in the Australian market,” says Mr Kirkland.

“We found that with one Microsoft software development product2, you could fly to Los Angeles return to buy the software and still save thousands of dollars.”

“With price differences this stark, the same old excuses just won’t cut it anymore.”

While it is good that the industry is finally being held to account, CHOICE has also released a guide for navigating around international price discrimination for consumers wanting to take matters into their own hands.

CHOICE is also calling on the Government to investigate whether measures used to sustain international price discrimination, like geo-blocking, are anti-competitive.

I’m not sure how a subpoena to Apple is supposed to make itunes pricing more transparent – maybe people have short memories, but it took until Oct 2005 to get a local itunes store because of negotiations with the Australian rights holders. 2 and a half years after the US, by which time the record companies were wanting to raise prices to stop declining revenues. If they aren’t dragging record companies in as well to explain how the wholesale pricing was derived, what good will all this do? You can’t always direct the blame at the retailer.

As far as i know, Apple’s pricing model is pretty simple – they take 30% of the sale price and pay the GST giving them a 20% margin. App store is the same. Between those 2 factors, they’ll effectively wash their hands of the price discrepancy. Yes, it is in their interests if the price is higher – but it’s also in the govt’s interests in terms of GST revenue.

It should be much simpler in the case of Adobe, Roxio and others, who are selling their own product at significant markups, so the case for price gouging ought to be much easier to make.

As much as I’d love to see local pricing drop, which would stimulate retail rather than people shopping online from O/S and avoiding GST, simplistic price comparisons don’t cut it for me. Dollar for dollar we pay more, yet if you look at federal minimum wages, the US minimum hourly rate of $7.25 buys 5.6 songs in the US iTunes store, while the Australian adult minimum of $15.96 buys 9.44 songs in the local store. It’s a complex issue that requires an intelligent examination of our consumer purchasing power relative to equivalent nations, not just simplistic headline grabs if there’s to be a real difference made to Aussie consumers.

Yeah but all this is over is the iTunes portion of Apple, nothing else, because if you read the article you’d see that they have been dropping their Beautiful Beaches Tax on their hardware and AppStore for years now. All that is left is iTunes, and that directly leads to it being a Music Industry issue, those fabulous old timers who refuse to leave the 1990’s.

yeah, there’s not a whole lot of reason to complain about the pricing of Apple’s own products these days. Hasn’t always been the case, but we do all right now. Plenty of other countries worse off than us in that regard. If there was an organisation I’d like to see brought foward to explain their price gouging, it’d be Choice – c’mon, $1.91 a week for “consumer advice” of dubious benefit, who are they kidding ;-)

Simplest way to drop prices is to introduce more competition, but I don’t see Husic et al with much to say about that.

One MS example of 100% markup is the cost for in-place upgrade of Windows (for example from Home to Professional or Ultimate) which costs USD$100 in the USA or AUD$200 in Australia.

It would be interesting to see if this results in some sort of anti geographic price discrimination legislation and whether by extension that also applies to region locking (which is essentially a technological enforcement of the same).

As Choice has pointed out, geoblocking is the problem there. The price they’re charging in Australia is only part of the problem; actively stopping Australians buying online downloads from the US sites at US prices is where anti-competitive behaviour comes into question.

Except as stated above where restrictions be removed to remove geo-blocking. This would obviously have a small effect on GST revenues, but as previously mentioned on this site, many of these companies have ridiculously small corporate tax bills anyway.

Negative. A companies right to charge what they feel right in different markets is a basic tenant of capitalism. You can’t tell companies they must charge one world price and even if you could it would be impossible to police. Next suggestion…

Never said we have “pure” capitalism but for us to demand that a foreign companies exports are a certain price is a form of protectionism and violates all free trade agreements from which we benefit greatly. Suggestions that are remotely legal and practical are required.

We’re not demanding that certain companies’ prices be a certain amount.

We’re demanding that certain companies allow us to buy their product at the price they deem appropriate for the rest of their customers, who download the product from the same servers we do, get support from the same web forums we do, and get the runaround from the same indian call centres we do.

Would they not just argue that geoblocking is the work of the company’s US branch? We can hardly regulate what Adobe LLC does. Since the transaction does not occur in Australia, we cant make them do anything.

(Don’t get me wrong, I think the situation stinks. I’m just playing devil’s advocate…)

I’ve been involved in similar discussions. The perceived value of a good can be established by the price of the good, e.g. a $15 book can seem less special than a $30 book, and the only real difference might be in the design.

However, in this case it’s exactly the same good, being sold from the same bank of servers, downloaded through the same pipes, at the same cost to the seller, but at a higher price if the buyer is in Australia. It’s not about the cost of producing the good relative to other goods, it’s just price discrimination based on territory.

Books are a classic example of the problem. I can buy books individually airmailed from Europe for less than a third of the local RRP (which in itself is double the overseas RRP). I presume that includes a profit margin for the bookseller who posts it to me.

Apple would simply argue geo-blocking is a licensing issue with the company they distribute from. Since the television stations may have the airing rights but have not aired it yet iTunes would not be allowed to distribute shows .
The other companies who are distributing their own products would have a tougher time legitimising their prices I’d think.

I am interested to see what will happen, but the price disparity isn’t just limited to technology or these three companies. Steam also has vastly different regional prices (and they charge in USD in Australia, so exchange rates aren’t a factor); see steamprices.com for examples. Even things like Lego is significantly higher here, as are televisions and other electronics.

Why stop with software companies? Lego is a terrible example of Australian consumers being price-gouged where their products RRP are between 50%-100% higher than US prices. Perhaps software (especially non-boxed downloadable versions, like game add-ons) is just harder to defend?

Lego is another example of a disgraceful price disparity between Aus and the US. When a model that costs less $200 with $14 shipping from the official Lego store if you live US but is $150 more and $45 shipping from the Aus Lego store.

You can buy the same set on eBay for $230 with shipping from the US. Not that you can find the said set in a store in Australia anyway.

The biggest issue is when the products are digitally sold, which essentially means the DIRECT cost of sale and marketing is equal in both markets. I cant speak to all markets, but i got an interesting insight in the last year about this.

EB games is australia’s largest video game retailer. They are part of the GAMESTOP franchise, which i think is the world’s largest franchise.

THey held an expo in which Gamespot, ( a gamer enthusiast website), interviewed EB Games under the topic “are australians being ripped off for games”. The contention was that video games were marked up between 30-50% more at the time for aussies.

So, where the bomb is dropped, is that EB games stated that “they would not stock the video games on the shelf in retail”, if digital sales platforms stocked the goods lower than they wanted to, including their retail margins for a physical store.

So essentially, the entire Australian games industry (eb games), is threatening to boycott game producers/developers products unless they comply to their pricing demands.

I was extremely surprised that they actually admitted to this, and i wonder if he accidentally said more than he should on this, as that seems to be an anti-competitive practice.

This being said, i dont want to see the death of video games in retail, I just disagree with this practice, and the unfortunate reality is that digital is the way of the future, and this kind of practice is stifling innovation.

It wouldn’t surprise me if the items sold in the US weren’t manufactured here, but in China, or Korea for the US market; if they are actually made here, then it’s worth remembering that the US market (for example) makes our market look like a small hippy commune verses New York’s economy.

There are orders of magnitude differences. That’ll likely affect production runs and pricing. So will comparative living standards, etc. It’s a bit more complicated than it might first appear.

Hey Brendan. That’s a fair enough point for many products; but this company insists that all it’s products are made locally. And the quoted price is direct from the companies own AU website, not a third party distributer. Regardless of bulk pricing for US clients, that’s a HUGE markup.

So they’re either liars, or rip off merchants in my book.

“Whatever the people will pay” seems to be go for so many things sold here.

Arent there markets that pay less than the US? I’m thinking Brazil, rural China, places like that, where they earn little, and spend less. There is still a market for the product, and the price matches local capability to pay.

What I’m getting at is that if we just compare our prices to the US, we’re missing that there are others out there paying less. Why arent they paying the same as the US (I’ll be clear that I dont think they should), and why are there different prices anyway?

Geoblocking is whats causing this. Get past that, and have a standard global price, and you may find we pay even less than what we’re hoping on.

Two key tenants of content, IP and rights holders. That’s the issue. Almost everything else that has disparate pricing his this as a key backstop.

Because where it ceases to exist, pricing tends to be comparative, due to competition forces within the market.

The problem has always been the sales model; the ticket price differences are a symptom, not a cause. The cause is the restriction of whom can by what, where. Husic sees pricing as a causal factor. It’s not. :)

iTunes pricing is dictated in strong part to rights holder interests. Software owners whom have geo-blocking are simply aping the motion picture and music industry’s modus operandi. If you can restrict content and or constrain supply, you can apply differing access and pricing models.

Husic can’t force Adobe to drop geoblocking any more than you or I can. It’s a decision made by content owners, which affords an increase in profits; unless it’s illegal, they are perfectly entitled to control their IP.

Does that whole thing suck? Sure. But you can’t fix the issue here, because the problem source isn’t here.

Which is why i’ve been bemused by the whole situation. Short of changing trade agreements, both here and off shore, all Husic can do is call to punish local representatives of international corporates; which doesn’t really fix anything.

Now are these question being asked of companies from Australia that sell products outside their home territory & are they also asking how come they give home discounts but not outside of Australia. cause you cant pick on side & ignore the home side.

Steam is the most obvious and simplest example as it is a 100% digital product. There is no added cost of doing business. Whether you buy a game from the US, UK, Russia or Australia the servers at Valve must still upload the same content to you. The business model is identical.

$89AU for a latest PC game with an Aussie IP Address
$59US for a latest PC game with a US IP Address.

Whether its digital or not there are many factors outside the control of some of these vendors that effect pricing.

For digital content, dont under estimate the additional cost of international internet bandwidth to Australia. It is very expensive compared to the cost of local traffic for the US or European customers where the servers are based. That combined with rights holders increased costs in this country means we will always pay more for digital until we have AU/US parity for living standards and minimum wage. And I dont think you want to go there…

Cost of sale for retail items is also a lot higher here (wages/rent/power/marketing etc) and when you factor in the 1% market volume from Australia its a wonder any companies do business here.

Dont get me wrong, I think there is clearly some price gouging going on, but its not an open/shut case.

Bandwidth costs might be upwards of 0.05c on the price tag. Last time i checked 0.05 doesnt equal 20-50% margins of upwards to $20-40 on a product… $2000 in the case of adobe.

Next time you chime in about bandwidth costs you might want to actually understand content delivery networks and the price of data. Half of the time, the content delivery network isnt even located in australia and then the cost of doing business is transferred through the traceroute to the local ISP.

Even if they are in australia, Go check costs on Australian CDNs, its NOT very high.

(From somebody who owns a few 1TB CDN plans)

Point 2) What has the cost of doing retail got anything to do with digital sales? Oh thats right nothing.

Not sure why you are trolling, and if its ignorance or you work for one of these idiot vendors.

I was researching a scanner capable of scanning negatives and slides. I found a HP product, its price on the HP australia site is AUD $252, HP USA is USD $109. We as a market are being gouged on price. The Australian price is 2.3 times the US price or 230% of the US price. For a product that would come from a factory in China, the price should be very similar.

The latest version of Microsoft’s Windows operating system will begin rolling out from Wednesday (July 29). And remarkably, Windows 10 will be offered as a free upgrade to those users who already have Windows 7 and 8.1 installed.

Two sizable Queensland Government departments have no central disaster recovery plan, the state’s Auditor-General has found, despite the region’s ongoing struggles with extreme weather conditions that have previously knocked out telecommunications and data centre infrastructure.

The Australian Signals Directorate appears to have released a guide to hardening Microsoft’s Windows 8 operating system, three years after the software was released for use by corporate customers, and as Microsoft is slated to release its next upgrade, Windows 10.

Perth-headquartered IT services group ASG this week revealed it had picked up a deal worth at least $35 million over five years with CIMIC Group — the massive construction and contracting group previously known as Leighton Holdings.